Charitable giving through the passing assets today and after your death is a process that requires correct planning and execution. Legacy planning should always be a team effort involving an attorney, tax specialist, and financial professional.
Charitable gifting has no right or wrong way but is best in the way that you prefer.
The complexity of charitable giving through wealth transfer can increase with the number of assets you own, the people or organizations you want your wealth to benefit from, and the length of time you want your assets to last. However, by using life insurance, the complexity can lessen. Here are some ways to make life insurance benefit a charitable organization:
Name the organization as the beneficiary
This method is the easiest way to use life insurance to give to charity. However, naming a revocable beneficiary is one way the donor can change the beneficiary if they choose, keeping the donor in control if their situation changes. Also, naming a charity upon death keeps the transaction private.
Gift the policy dividends
The donor can choose to gift the policy dividends to charity, keeping the death benefit for other beneficiaries or another charity. With this option, the donor can take dividends in cash and donate cash. With this method, the dividend donation is tax-deductible.
Donate the life insurance policy (policy donation)
The donor continues to make all premium payments on a policy they donate to charity. There is no limit on the size of the policy donation, and the policy pays in full upon the donor’s death. Gifting through a policy donation can help reduce the donor’s estate taxes and provide a much more significant benefit to the charity, which has no tax consequence from the gift. The Benefits of giving through life insurance include:
- The policy value continues to grow over time until the donor dies.
- Gifting life insurance providing a much larger donation than if given in cash
- The donor can make smaller payments through monthly premium payments.
- Life insurance can provide a donation more extensive than the premiums paid, making it a good option for charitable giving. If you have questions on how life insurance can be part of your legacy planning, contact your financial professional.
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